North Carolina's Republican Congresswoman Julia Howard picked up more corporate sponsors than a NASCAR driver. Now she's repaying those that helped elect her and her fellow Republicans by passing a bill that threatens to kill municipal internet projects and North Carolina citizens' right to self-governance. (Source: North Carolina Congress)

The bill contains language that would allow a state board to overall local citizens right to self-governance by giving them the discretion to prohibit services that passed a local vote. (Source: Union County Public Schools)

Measure allows state officials to deny local citizens the right to self-governance

Telecom
giants in North Carolina have been lobbying hard for several years now to try
to stomp out municipal internet, phone, and cable
television services that threatened their local monopolies or duopolies.
The effort looked at risk when they lost the support of Democrats this
year, but thanks to some dedicated lobbying they managed to firmly convince the
Republican majority to restrict local government's rights and enact a measure
that presents a barrier to competitive municipal services.

North Carolina's State House has voted today to pass a critical bill, H.128 [PDF], by a
margin of 81 to 37. The bill, at face value, installs significant hurdles
towards providing citizens municipal services.

The bill was instigated by several towns/municipalities installing local
government-backed services to offer citizens an alternative to local
monopolies/duopolies. Fed up with slow internet, limited cable channels,
and high service costs, citizens banded together and pushed local officials to
create municipal internet, cable TV, and phone services.

Places with such a service include Wilson, North Carolina (Greenlight,
Inc.), Salisbury (Fibrant), Davidson (MI-Connection), and Morganton (CoMPAS
Cable TV & Internet).

While the service was ratified by the municipal council/board, the projects
were typically initiated on behalf of numerous complaints about local service
providers' fees. The municipal services' development spanned multiple
years giving citizens time to vote politicians out of office if they didn't
like the idea. Further, many of the cities held town hall meetings
gathering feedback. Most citizens voiced enthusiastic support when the
plan was clarified.

Under most of the current efforts, the city government first goes out and seeks
loans in the private sector. Typically these loans fall within the range
of $25M-$45M USD.

After obtaining loans, the local government then contracts private sector firms
to install necessary infrastructure to create a competitive network to the
local phone, cable television, or internet service.

Once installed the service is operated as an independent entity.

The services so far have been a great asset to communities. In Wilson,
residents enjoy 10 Mbps internet from their municipality for $35/month, where
they would have to pay $57/month to receive equivalent service from Time
Warner, Inc. (TWX).
Further, businesses are offered a 1 Gbps line by the municipality --
something Time Warner claimed it's unable to offer at any price.

In short, the service seemed like a win for citizens. The only clear
loser seemed to be telecoms, which were forced to cut their prices and reduce
their profits with the dissolution of their local monopolies.

II. Cracking Down on Municipal Internet

Politicians like Rep.
Julia Howard (R-Davie, Iredell) contend that the municipal
internet projects are unnecessary and worse yet can represent a malicious
interest to business. Rep.
Marilyn Avila(R-Wake), who along with Rep. Howard co-sponsored the
bill, says that legislation was needed to prevent "predatory"
challenges to the private sector.

Indeed the bill's language is carefully worded to portray this side of the
story. It is entitled "Level Playing Field/Local Gov't
Competition". Its advocates claim that it will not ban municipal
internet outright, but simply force them to "compete" with local
telecoms.

As usual, there are always two sides of a story, however.

Critics point out that companies like Time Warner (cable internet), Embarq (DSL
internet), AT&T (T)
(cable TV), and CenturyLink, Inc. (CTL)
(phone) have poured millions into lobbying the federal government to pass the
initiative.

Many of the Republican congressmen sponsoring the bill reportedly received
direct campaign donations from these companies. For example bill
co-sponsor Rep. Howard is accused of receiving $4,000 from CenturyLink, $750 from Time
Warner, and $1,500 from AT&T.

Critics say that even more money may be funneled through private donors.
They argue that the telecoms essentially paid for the Republican congressmen
to be elected and now they're asking them to return the favor.

III. What's in the Bill?

Whether the telecom monopolists "bought" the NC Congress's vote or
whether Congress really sought to create a "level playing field" with
the most earnest of intentions, it's important to consider what's actually in
the bill itself.

The bill begins by spelling out a set of provisions with which municipal
service providers must comply. Some of these provisions are redundant
with existing federal laws but seem to serve as a vehicle to insert language
inferring that municipal internet is somehow "discriminating" against
telecoms.

For example, Provision 5 states that the municipal services:

Shall provide nondiscriminatory access to private communications
service providers on a first-come, first-served basis to rights-of-way, poles,
or conduits owned, leased, or operated by the city unless the facilities have
insufficient capacity for the access and additional capacity cannot reasonably
be added to the facilities. For purposes of this subdivision, the term
"nondiscriminatory access" means that, at a minimum, access shall be
granted on the same terms and conditions as that given to a city-owned communications
service provider.

The Clinton administration's Telecommunications
Act of 1996 forces all implementers of U.S. telecommunications
networks to interconnect their networks and allow for common use. Thus it
is unclear exactly why this language is necessary. Again, this appears
designed to paint a misleading picture, suggesting that there's some sort of
phantom conspiracy against business where there is none.

Other provisions offer confusing limitations to the powers of local government.
For example one bans the use of city funds to finance the projects.
It states:

Shall not subsidize the provision of communications service with
funds from any other noncommunications service, operation, or other revenue
source, including any funds or revenue generated from electric, gas, water,
sewer, or garbage services.

In other words, Republicans are arguing, even if local citizens want to band
together and spend local government funds on municipal projects they are
prohibited from doing so. Thus the state government is essentially
robbing the citizens of the right to self-governance, because they argue, the
locals might make an "immoral" decision to threaten the local telecom's
monopoly/duopoly.

Provision 9 offers a further restriction:

The city shall annually remit to the general fund of the city an
amount equivalent to all taxes or fees a private communications service
provider would be required to pay the city or county in which the city is
located, including any applicable tax refunds received by the city-owned
communications service provider because of its government status and a sum
equal to the amount of property tax that would have been due if the city-owned
communications service provider were a private communications service provider.

In other words, the city has to pay local taxes to itself. The point is
not just to inconvenience the projects, though. Combined with the
previous provision it means that the city has to yearly apply taxes to itself
which cannot be returned to reinvest in the internet service. This puts
the service at a bafflingly disadvantageous web of self-taxation and denial of
funding.

Provision 8 puts municipal services at an even greater disadvantage, stating,
"[They] shall not price any communications service below the cost of
providing the service."

Thus local governments are outlawed from offering the kinds of promotional
rates that telecoms regularly provide. So while the bill claims to be
"fair" it clearly creates a situation that gives the monopolistic
telecoms at advantages by granting them additional rights and privileges that
the local government is forbidden access to.

The bill offers exemptions to existing services, but the exemptions do not
cover the most damaging provisions (outlined above). Thus existing
services will be affected virtually the same as new services.

The legislation does contain an additional measure that may further block new
services, though.

The bill states that all municipalities looking to implement new services must
first go through a number of steps (hold two town hall meetings on the issue,
collect bids, hold a special election on the topic of incurring private sector
debt to finance the project, etc.). All of these steps seem relatively
reasonable, and are in fact in line with what occurred with many of the current
projects.

But the "catch" as they say, is that the city then has to submit a
proposal to a state Commission. That Commission will have complete
authority whether to accept or reject the proposal. States the bill:

The city or joint agency
making the application to the Commission shall bear the burden of persuasion
with respect to subdivisions (1) through (4) of this section.

Thus while the bill does not ban new municipal internet projects, it hands the
state government the legal power to do so.

The decision by state Republicans to allow state government to ban local
citizens from self-governance at their discretion is a particularly surprising
one given that the national Republican party has emphasized shrinking federal
government and putting more power in the hands of local governments.

The big winners here are clearly the politicians who obtained the finances they
needed to get into office and the telecoms, who move a step closer to
safeguarding their monopolies from pesky municipal projects.

The biggest losers are local governments and the state's citizens. For
all their hard work in creating cash-positive municipal services that beat the
quality and price of previous monopoly/duopoly offerings, they now must fear
that their service may be slowly choked and shut off by the state government.

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quote: The ability to operate at a loss and pass laws intentionally to prop up your own business while punishing others is why a free-market capitalist system frowns upon the government (be it Federal, State, or Local) from owning businesses that compete in the private sector.

A TRUE free market system doesn't frown upon Govt, it has no need for it...since a true free market system would have real competition. That would provide the services better and cheaper with each passing competitor, thus people would never turn to their Govt to provide the answer simply because the free market would have already provided it. But in case here the Govt has allowed a monopoly/duopoly strangle hold on the services and not allowed true competition to exist.